Question

An inventor of a product is paid 20p every time a product is sold. Such a cost would be classified by the product manufacturer as​ a:

A. Semi-variable cost
B. Fixed cost
C. Variable cost
D. Opportunity cost

Answer 1

An inventor's commission of 20p per product is a variable cost to the manufacturer as it changes with the number of units sold, unlike fixed costs that remain constant and semi-variable costs that have both fixed and variable elements.

Step-by-step explanation:

An inventor is paid a commission of 20p every time a product is sold, this is a cost to the manufacturer that varies with the number of products sold. Such a cost is classified as a variable cost, because it fluctuates directly with the level of production or sales. Fixed costs, on the other hand, remain constant regardless of a firm's level of output. Semi-variable costs have components of both fixed and variable costs, and opportunity costs represent the potential benefits that are lost when one alternative is chosen over another.

The pattern of costs, including variable and fixed costs, can vary among industries. However, variable costs typically show diminishing marginal returns, and therefore, the marginal cost of producing higher levels of output increases.